The Czech competition authority is facing an exodus of economists.

Earlier this month, the chief economist of the Brno-based Czech competition office (ÚOHS) resigned. Milan Brouček, who had recently completed an unprecedented enquiry into the Czech energy sector on behalf of the authority, has moved to Bratislava to work for the Slovak competition office instead. There are signs that his former colleagues in the economics department may also leave.

What is going on? Last July, in a blog entitled ČEZ and the Fear of an Idea, I reminded readers that ÚOHS would soon complete its energy sector enquiry. I said then that it was improbable that ÚOHS would confirm ČEZ’s age old assertion that its relevant market is European. More likely, I suggested, it would reinforce the European Commission’s own publicly stated concern that ČEZ holds dominant market power, and this because its relevant market for competition purposes is Czech.

For as long as the received wisdom of a single European market in wholesale electricity generation remains unchallenged by the competition authority, so does ČEZ’s domestic hegemony. The correct definition of ČEZ’s relevant market is the critical first step to making the Czech wholesale generation sector competitive, since it would greatly reinforce the suspicion that ČEZ is abusing its dominant power to restrict competition. This in turn would encourage ČEZ to pre-empt regulatory action by the competition authority, here or in Brussels, by reducing, voluntarily, its dominance, for example by divesting generation assets.

Perhaps I was right after all. Perhaps the chief economist and his team reached the ‘wrong’ conclusion, causing consternation at ČEZ, which is awaiting the ruling of the European Commission on its alleged abuses of power.

Perhaps Petr Rafaj, the chairman of Czech competition office, is under pressure to ‘reorganise’ his economics department, and to bury the energy sector enquiry. And perhaps this explains the impending exodus of economists.

Any weakening of the fledgling economic capability of the Czech competition authority will no doubt dismay Brussels, which places economic procedures at the centre of its competition work. Formally, ÚOHS is committed to basing its decisions upon such procedures too. But without economists, this commitment is empty. And without economists, the incentive for firms to resist temptations to abuse their market power evaporates. There would be no more troublesome sector enquiries.

This is bad news for economic competition in general and for competition in the Czech energy sector in particular. By all the economic discipline’s measurements of market concentration, the sector has become much more concentrated in the last three years, since International Power sold its generation assets to J&T aka EPH in 2009. Although formally separate, the suspicion that EPH and ČEZ coordinate their market moves is hard to resist.

One way of confirming that the chief economist and his team got it ‘wrong’ is if they chuck in the towel and seek productive employment elsewhere. Another is if the findings of the sector enquiry, completed several months ago, are kept secret.

We shall know soon enough. And in the meantime, we look forward to the ruling from DG Competition. All the signs are that it, too, will get it ‘wrong’.